The impact of US tariffs on Latin America

The United States plays a pivotal role in Latin American economies, with the US being one of the region’s largest trading partners, both for imports and exports. The country has shared a long-standing trading relationship with Latin America, one that has been rooted in interdependence. Historically, the U.S. has been a dominant partner, importing commodities like coffee, sugar, and oil while exporting manufactured goods and machinery to the region. Over time, trade dynamics have evolved, with Latin America seeking to diversify its partnerships, particularly as China’s influence in the region continues to grow. However, despite this shift, the U.S. remains a key trading partner, underscoring decades of economic and geopolitical connections.

With the arrival of the new US administration in January 2025, however, Latin America faces an uncertain outlook in terms of its trade relationship with the United States. Concerns have been raised around the “America First Trade Policy” and protectionist ideologies that may significantly impact economic stability in Latin American countries. As the 90-day pause on tariffs above a baseline 10% starts to near its end, how can middle-market businesses prepare for the oncoming uncertainty?

The background

After the inauguration of the current US administration in early 2025, the United States implemented sweeping tariffs and trade measures, starting with a 25% tariff on Mexican and Canadian goods and a 10% tariff on Chinese goods. This then escalated with the imposition of higher steel, aluminium, and vehicle tariffs, alongside universal and elevated reciprocal tariffs affecting multiple countries.

The uncertainty and retaliation from other countries triggered economic strain and stock market volatility which has led to a 90-day pause on tariffs above the blanket implementation of 10% on all exports as trade negotiations are held and new deals are struck.

If the tariffs roll back to their original pre-pause amounts, Guyana, Nicaragua, and Venezuela will be particularly impacted with 38%, 18%, and 15% levies, respectively, on their exports to the US. Mexico has its own tariff structure with the US; a previously implemented 25% tariff on all of Mexico’s exports to the US has effectively been reduced in practice after Mexico negotiated exceptions. As of now, products covered under the United States-Mexico-Canada Agreement (USMCA) are exempt from the 25%, and for vehicles, the 25% tariff only applies to parts that come from outside North America.

The regional economic impact

The imposition of a blanket 10% tariff on all imports from Latin America, alongside heightened proposed tariffs for Guyana, Nicaragua, and Venezuela after the 90-day pause, poses significant economic uncertainty and likely challenges for Latin America.

For commodity-exporting countries, including major oil suppliers like Brazil and Colombia, and copper exporters such as Chile and Peru, lower trade volumes and weakened commodity prices could reduce both export and fiscal revenues. Venezuela, in particular, faces severe consequences due to the potential of the US implementing a secondary tariff of 25% on any country that imports Venezuelan crude oil, on top of the heightened tariffs. This secondary tariff could lead to reductions in crude oil imports by major foreign buyers like China and India, further aggravating its economy. This combination of tariffs could erode foreign exchange reserves and destabilise domestic markets, forcing Venezuela to seek alternative, less desirable revenue streams.

Beyond direct trade impacts, the tariffs could exacerbate slower gross domestic product (GDP) growth across Latin America via secondary channels, such as reduced foreign direct investment and diminished global economic activity.

Remittances are also a particularly sensitive issue which could decrease under new migration policies that have been introduced alongside the tariffs. Countries such as El Salvador, Honduras and Guatemala rely heavily on remittances, which represent a significant percentage of their GDP. For example, in 2024, Guatemala received about $21.5 billion in remittances (about 19% of GDP), underlining the region's vulnerability to changes in migration policies.

Of course, US-bound exports are perhaps the most vulnerable as the region heavily relies on American trade, with Central American nations facing potential pressure to make security or migration concessions to mitigate tariff impacts. While Chile, Colombia, and Peru benefit from some free trade agreements and exemptions for key exports, their economic growth could still be constrained by reduced demand in global markets, particularly in sectors like copper for Chile and Peru as previously mentioned. Simultaneously, nations like Brazil are exploring bilateral negotiations to soften the impact of 25% tariffs on industries like steel and aluminium, though such efforts may yield limited immediate relief.

Conversely, Mexico may actually benefit in some ways after successful trade negotiations. Mexico's trade and tariff arrangement with the U.S. has largely mitigated the impact of the previously announced 25% universal tariff. Securing these exemptions under the USMCA and limiting the 25% tariff to automotive exports with foreign content from outside North America, Mexico effectively reduced its average tariff burden to approximately 10.5%. This adjustment is expected to boost Mexico's real GDP growth forecast for 2025 and maintain a competitive edge in the U.S. market, particularly against Asian competitors.

Strategies for middle-market businesses in Latin America

The uncertainty presented by the change in trade dynamics demands a proactive approach, where the region must anticipate changes and make strategic decisions to mitigate potential risks. For middle-market businesses in the region, preparing their next five moves is essential, emphasising the importance of looking ahead, diversifying export markets, and broadening sources of investment to reduce dependency on any single partner or policy.

To navigate these challenges, businesses should focus on building stronger trade relationships and enhancing their commercial diplomacy to secure favourable agreements. Improving logistics and supply chain efficiency will also help to maintain competitiveness. Adapting to shifts in trade agreements with agility and foresight will allow the region to weather uncertainties more effectively. While the road ahead is fraught with challenges, this period of change also offers an opportunity for Latin America to strengthen its economic resilience, its independence, and carve out a more competitive position in the evolving global trade environment.